Nestle India Limited (NIL) posted another good set of numbers for the first quarter of CY08.
Net sales surged 26.4% to Rs10.9 billion, primarily on the back of a strong growth in domestic sales, which grew 29.2% y-o-y and crossed the Rs10 billion mark.
EBITDA rose 38.2% y-o-y to Rs2.5 billion and EBITDA margin increased 195 bps y-o-y to 22.8%. This appreciation was attributable to a judicious price increase, economies of scale, and an improved sales channel mix. All these factors offset the impact of rising raw material prices and energy costs.
Net profit soared 54.8% y-o-y to Rs1.6 billion while margin jumped 276 bps on the back of the tax holiday benefits applicable on the Pantnagar factory operations.
We have valued Nestle’s stock on the basis of its discounted free cash flows through a three-staged DCF model and have arrived at a target price of Rs2,095 after factoring in the expected rise in raw material cost.
Besides, the company has high 5-year average dividend payout ratio of around 79%, which provides a strong support to the target price. Currently, Nestle is trading at a forward P/E of 30.6x for CY08E and 24.4x for CY09E. We upgrade our rating to BUY.